The Worst Ideas, The Biggest Profits

By Matthew Milner, on Wednesday, March 5, 2014

After speaking with dozens of professional early-stage investors and poring over their track records, I think I finally uncovered the secret behind their success.

And while I’ve known about this secret for some time now, I’ve been reluctant to share it.

Frankly, I was doubting myself. Although it was a simple technique, it went against conventional wisdom.

But I recently saw a presentation from one of the top investors in the world. His name is Chris Dixon, and he invests on behalf of Andreessen Horowitz (early backers of Facebook, Twitter, Pinterest, etc.).

His presentation convinced me that I was on the right path – that the secret I’d discovered was real…

Here’s The Simple Secret

What’s the secret to finding the next “big idea” to invest in?

Focus on the worst ideas.

Or at least the ideas that sound the worst…

The ones that sound insane. The real stinkers.

Yes, I know. You’re skeptical. I was, too. This sounds crazy.

But let me tell you more. Then you can be the judge.

Forget The Good Ideas That Look Like Good Ideas

There are plenty of ideas out there that most folks agree are good ones.

Renewable energy. Cures for cancer. Longer-lasting smartphone batteries.

But big ideas with obvious merit are already being worked on. Brilliant scientists, governments, and corporate research arms have been toiling on them for years.

So if the obviously good ideas are off the table, what does that leave for the entrepreneurs?

The leftovers.

The thing is: sometimes, leftovers can really hit the spot.

Let’s look at two examples.

Dirty Linens

When I first heard about a new service that helped people rent out rooms in their homes to short-term travelers, I had a strong reaction:


Paying to sleep on someone’s couch, or on dirty sheets in their spare bedroom?

Um, no thank you. That sounds horrible.

Professional investors had the same reaction. They ridiculed it.

But the founders saw something that others didn’t.

The founders were part of the “couch surfing” trend, where a global community of users would open their homes to others just to make new connections.

Then they saw an opportunity to take this trend a step further:

They saw an opportunity to disrupt the entire hotel industry. 

Today, their start-up – Airbnb – is one of the great success stories of modern times. It’s gone “mainstream,” with 300,000 listings in 192 countries. In 2012, 2.5 million people used them to find a place to stay.

And it’s currently valued at $2.5 billion, up from $1 million in 2008.

That’s a 250,000% increase in valuation on an idea that I originally thought sounded awful.

Let’s look at another example...

Leave My Website… Immediately!

In the early days of the Internet, web sites like AOL and Yahoo! focused on how “sticky” their sites were – in other words, how long they could trap visitors like us.

Since they made money serving up ads, the longer we hung around, the greater their revenues.

Then a new start-up emerged. It helped consumers find anything they were looking for online, quickly and efficiently. It provided them with helpful links — then it let them leave.

Although consumers found the technology incredibly useful, the start-up was ridiculed by investors, and by websites concerned about “stickiness.” After all, its technology was so good it virtually ensured that users wouldn’t stick around, and thus, it didn’t have a way to make money.

One potential investor was so turned off during a pitch meeting, he snuck out the back door.

The founders – passionate engineers who recognized consumers’ desire to get a handle on the unruly Internet – stuck to their guns.

If you haven’t guessed already, the company is Google.

They finally figured out a way to make money – lots of it.

Its current market cap? $400 billion.

Its earliest investors earned 3,000%.

Where To Find These Bad-Sounding Ideas?

Ideas that initially sounded bad – like Airbnb and Google – are everywhere.

A good place to start your search is on equity crowdfunding sites, like the ones we cover here at Crowdability.

The trick is to find deals that might sound bad at first glance, but after careful examination, are actually diamonds in the rough.

The way to avoid the real stinkers is by creating the right filters.

Here are 3 filters you can use:

1. Streamlines An Existing Process

If the start-up recognizes something new that’s happening in the world, and is building a business to make it happen more easily, that’s a good sign.

In Airbnb’s case, for example, the founders saw thousands of people “couch surfing.” It was happening all around them. But it was messy and inefficient – it wasn’t organized in any way.

Airbnb organized it. They simplified the process of finding and paying for a short-term rental. And what’s even better, they figured out how to make money doing it.

2. The Company Already Has Traction

This is a simple filter – and a great one:

If a company already has traction, it’s worth a look.

Despite the initial indifference of website owners and investors, consumers were crazy for Google’s technology. Even a disinterested observer could see that Google was gobbling up market share. It wasn’t just a company; it was fast becoming a verb.

Google didn’t know how to make money yet – that came later. But Facebook didn’t know how to make money in its early days, either. With a billion users, they eventually figured it out.

Massive consumer traction – the type you saw with Facebook, Twitter and Google – is a pretty good proxy for future revenues.

3. Why Now?

If now is the right time to launch a new business, that’s a good sign.

In Airbnb’s case, for example, there were several trends and technologies contributing to its good timing – from the rise of authentic online identities (there’s no way I would have rented my apartment to you before the days of Facebook; I wouldn’t have been able to see your real identity!), to the now-commonplace practice of leaving an online “review” (so a potential renter can hear the truth about my leaky faucet and loud upstairs neighbors).

The Next “Crazy” Ideas

Today, entrepreneurs are working on “crazy” ideas like Bitcoin-inspired business, flying cars and drones.

Before you dismiss these companies, put them through these 3 filters.

It might lead you to profits!

To see Chris Dixon’s presentation on YouTube (it’s about 23 minutes), click here:

Happy Investing!

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Equity Crowdfunding Airbnb Early-stage Investing Bitcoin Google

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